Banking Setup for Property Management Companies

[Patrick Tudor]

Hi, me and my business parter started a Vacation Rental Management company and have 2 warm-market-related clients. We are wanting to venture and take on new clients but want the correct systems in place. From my understanding, and correct me if I am wrong, a good method is to have seperate bank accounts for each individual client owned property. In which rent from guests go into said account. PM takes out money for property operating expenses and their commission - and then sends check to property owner. 

2 questions:

1) How does PM ensure each property's funds go directly into each property's account? Services like Stripe only allow 1 bank account per account.

2) Most banks require minimum balances to avoid monthly service fees. Are vacation PMs depositing their own money to maintain the minimum in client's trust accounts? 

[Collin Hays]

There is no reason to have a separate bank account for every client.  

A property manager should have three accounts:

- Escrow account.  All monies flow into this first.  It is essentially an advanced rents account.  Monies do not leave until the guest leaves.  We keep it simple and transfer funds of the appropriate amounts into the Management and Operations accounts on the first day of the month for the previous month.

- Management account.  This account is for internal business expenses for the PM.  Internet, office supplies, advertising, salaries, etc.  

- Operations account.  This account is used to pay out rents to homeowners, pay repair people to fix things at their properties, etc.  

Many states have laws for property managers to help ensure that the PM isn't dipping into the escrow account before the money is earned.  Every now and then, you will hear of huge property manager "going out of business" suddenly because they did just that.  They ran off with all of the escrow.  "Hickory Mist" in Gatlinburg comes to mind; there have been others.